NAR reveals how long student debt delays homeownership

Debt continues to hold Millennials back in financial decisions

An overwhelming majority of Millennials with student debt do not own a home, and believe this debt is the cause for the delay, a new study from the National Association of Realtors and nonprofit American Student Assistance showed.

The study revealed the typical delay is about seven years.

But home buying isn’t the only factor affected by student debt. The study showed student debt is holding Millennials back from financial decisions and personal milestones such as saving for retirement, changing careers, continuing their education, marrying and having children.

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“The tens of thousands of dollars many millennials needed to borrow to earn a college degree have come at a financial and emotional cost that’s influencing Millennials’ housing choices and other major life decisions,” NAR chief economist Lawrence Yun said.

“Sales to first-time buyers have been underwhelming for several years now, and this survey indicates student debt is a big part of the blame,” Yun said. “Even a large majority of older Millennials and those with higher incomes say they’re being forced to delay homeownership because they can’t save for a down payment and don’t feel financially secure enough to buy.”

In today’s market, only 20% of Millennial respondents own a home and the majority of them carry a student debt load that surpasses their income level at $41,200 versus an average annual income of $38,800.

Most of the survey’s respondents, 79%, indicated they borrowed money to pay for the education at a four-year college and about 51% said they are repaying a balance of more than $40,000.

Among those Millennials who do not own a home, 83% indicated their student loan debt has affected their ability to buy. The median amount of time Millennials expect to be delayed at buying a home is seven years, and 84% expect to postpone buying a home for a least three years.

And even among older Millennials who already own a home, student debt still continues to influence their decisions and prevent them from buying a trade-up home.

“Millennial homeowners who can’t afford to trade up because of their student debt end up staying put, which slows the turnover in the housing market and exacerbates the low supply levels and affordability pressures for those trying to buy their first home,” Yun said.

NAR explained that in order to keep the housing market moving, more options are needed to help reduce student debt levels for future students and help Millennials better manage their current debt levels.

“Student debt is a reality for the majority of students attending colleges and universities across our country,” ASA President and CEO Jean Eddy said. “We cannot allow educational debt to hold back whole generations from the financial milestones that underpin the American Dream, like home ownership.”

“The results of this study reinforce the need for solutions that both reduce education debt levels for future students, and enable current borrowers to make that debt manageable, so they don’t have to put the rest of their financial goals on hold,” Eddy said.

Currently, some lenders offer programs which allow those with student debt more options when it comes to home buying, including lenders who use Fannie Mae’srecently adopted policies which allow for student loan cash-out refinances and other options.

“Realtors are actively working with consumers and policy leaders to address the growing burden student debt is having on homeownership,” NAR President William Brown said. “We support efforts that promote education and simplify the student borrowing process, as well as underwriting measures that make it easier for homebuyers carrying student loan debt to qualify for a mortgage.”

However, this is just one study of many. In 2015, TransUnion announced the results of its study which seemed to show student loans have absolutely no impact on housing.

Another study from Fannie Mae showed that student debt does, in fact, delay homeownership, however college grads are much more likely to become homeowners at some point than those who don’t attend college.

Kelsey Ramírez is an Associate Editor at HousingWire. In this role she spearheads the production of HW Magazine. Ramírez is a journalism graduate of University of Texas at Arlington. She previously covered hard issues such as homelessness and domestic violence.

Commentary

With the recent turnover in leadership at the Federal Housing Finance Agency, we may be standing at the precipice of great change in the government’s role in supporting the mortgage market through Fannie Mae and Freddie Mac.